Existing Home Sales Surge
There were few major surprises in the economic news this week, and little change in the stock market. While there was a great deal of daily volatility, mortgage rates ended the week nearly unchanged. A flood of housing market data was released during the week, and most of it reflected improvement in the sector. The biggest unexpected news came from the September Existing Home Sales report, which jumped 9% from August to the highest level since July 2007. Inventories of unsold existing homes dropped sharply to a 7.8-month supply from a 9.3-month supply in August. This marked the lowest inventory levels in two and one-half years. September Housing Starts remained at depressed levels, which removes pressure on future inventory levels. Building Permits, a leading indicator, also held at low levels. In short, home sales improved, while inventory levels moved lower with a relatively light supply of new homes in coming months. If there is a note of caution, though, it's that much of the activity has been spurred by exceptionally low mortgage rates and the first-time homebuyer tax credit, and the future is uncertain on both fronts. The Fed is scaling back its purchases of mortgage-backed securities, which might push mortgage rates gradually higher, and lawmakers are currently debating whether to extend the first-time homebuyer tax credit. The Mortgage Bankers Association (MBA) also released its forecasts for this year and next. According to the MBA projections, purchase originations will decline slightly in 2009, but will then increase by 12% in 2010. Similarly, the MBA forecasts that existing home sales will rise by 11% in 2010. The chief economist of the MBA suggested that the timing of the economic recovery and the level of mortgage rates are the biggest variables influencing the results for 2010.

Also Notable

• September Core PPI inflation rose at a tame 1.8% annual rate
• The Fed's Beige Book reported modest improvement in "many sectors" of the economy
• The Treasury will auction a record $116 billion in 2-yr, 5-yr, and 7-yr securities next week
• The Fed purchased $18 billion in agency MBS during the week ending 10/21

Average 30 yr fixed rate:
Last week: +0.15%
This week: +0.01%
Stocks (weekly):
Dow: 10,000 +50
NASDAQ: 2,160 +10 

Week Ahead

The final week of October will be packed with important economic data. The most highly anticipated will be Thursday's release of third quarter Gross Domestic Product (GDP), the broadest measure of economic activity. Durable Orders, another major indicator of economic activity, will come out on Tuesday. The New Home Sales report is scheduled for Wednesday. Chicago PMI, Personal Income, and Core PCE inflation will be released on Friday. Consumer Confidence and Consumer Sentiment will round out the busy week. In addition, the Treasury will auction a record $116 billion in 2-yr, 5-yr, and 7-yr securities on Tuesday, Wednesday, and Thursday.

Mortgage Time courtesy of MBSQuoteline.com

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